RECOMMANDATIONS FOR ASSET MANAGERS
February 2023

Summary
INTRODUCTION .............................................................................................................................. 3
GENERAL RECOMMENDATIONS ................................................................................................... 5
Climate scenarios to use to limit global warming to 1.5°C ..................................................... 5
Decarbonization targets ............................................................................................................. 5
Key alignment and company assessment resources .............................................................. 7
What shall a good climate policy contain? ............................................................................... 8
Scope of application of the climate policy ................................................................................ 9
Engagement & voting policies.................................................................................................. 10
Overall framework ................................................................................................................. 10
The overall engagement policy ............................................................................................ 10
The activity report ................................................................................................................. 12
Nota bene .............................................................................................................................. 12
ENERGY SECTOR IN GENERAL .................................................................................................... 13
Company databases to be used .............................................................................................. 13
Points of attention for the oil and gas sector ......................................................................... 14
Definitions 15
COAL SECTOR ............................................................................................................................... 18
General sector overview ........................................................................................................... 18

Reclaim Finance | Recommendations for Asset managers | February 2023

Overall objectives ...................................................................................................................... 18
What to expect from companies ............................................................................................. 19
Recommendations on targeted restrictions ........................................................................... 20
OIL & GAS SECTOR ....................................................................................................................... 22
General sector overview ........................................................................................................... 22
Overall Objectives ..................................................................................................................... 22
What to expect from companies ............................................................................................. 22
Recommendations on targeted restrictions ........................................................................... 23
POWER SECTOR ........................................................................................................................... 26
General sector overview ........................................................................................................... 26
Overall objectives ...................................................................................................................... 26
What to expect from companies ............................................................................................. 27
Recommendations on targeted restrictions ........................................................................... 28
SAY ON CLIMATE ......................................................................................................................... 31
General context and objectives ............................................................................................... 31
What to expect from companies ............................................................................................. 31
Recommendations regarding policy measures to implement .............................................. 32
CLIMATE GOVERNANCE .............................................................................................................. 33
General context and objectives ............................................................................................... 33
What to expect from companies on climate governance ...................................................... 33
Recommendations on engagement and vote regarding climate governance ..................... 33
CLIMATE LOBBYING ..................................................................................................................... 35

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INTRODUCTION
Human activity has already warmed the world by about 1.1°C since pre-industrial times. 1
As the IPCC has repeatedly warned, limiting global warming to 1.5°C is essential to avoiding
catastrophic changes to the environment and human life. Every additional increment of global
warming worsens the impact and even at 1.5°C – and even more so at 2°C – climate change
will have major consequences on our societies and ecosystems. Indeed, the consequencesof climate change have become painfully obvious in recent years.
However, according to the United Nations, 2 current policies would lead to a 2.8°C temperaturerise by the end of this century and a rise of 2.4 to 2.6°C even if climate pledges are met.
According to the IPCC’s Sixth Assessment Report, CO2 emissions must be cut by 50%, andemissions of all major greenhouse gases (GHGs) by 45% by 2030 to stay on track to limit
global warming to 1.5°C. 3 Only an urgent system-wide transformation can deliver thenecessary emission cuts.
Reducing GHG emissions requires a rapid reduction in fossil fuel supply and consumption,
and a commitment to this is a key climate policy litmus test. But, achieving cuts at this scalerequires breaking with current trends: governments are in aggregate planning to produce
around 110% more fossil fuels in 2030 than would be consistent with limiting global warming
to 1.5°C, and 190% more by 2040. 4 Existing and currently planned fossil fuel infrastructurealone would emit about 850 GtCO2, 350 GtCO2 5 more than the quantity of CO2 that humanity
can still emit to keep global warming at 1.5°C. 6
The last eight years have been the warmest year on record. 7 Between 1970 and 2019, 4.6
million people died in 22,300 disasters associated with natural hazards, causing US$4.9 trillion
in economic losses. 8 In 2021, natural disasters caused overall losses of US$280 billion. 9
If urgent action is not taken, climate change could cost the world’s economy US$178 trillion
by 2070 10. The cost of adapting to climate impacts is expected to grow to US$160-340 billion
per year by 2030, and US$315-565 billion per year by 2050. 11 Moreover, the cost of
humanitarian assistance due to the climate crisis could double by 2050 (US$20 billion peryear), 12 and 216 million people could be forced to migrate within their own countries by 2050. 13
By contrast, bold climate action could deliver US$26 14 to US$43 15 trillion in economic benefits
through to 2030, compared with business-as-usual.
To scale up alternatives to fossil fuels and achieve the necessary emission cuts, financial
flows and services must be redirected from high-emitting activities to sustainable ones.
Renewable capacity additions must quadruple between 2021 and 2030 (from 290 GW to 1,200
GW). 16 At least US$4.3 trillion in annual finance flows are needed by 2030 to stay on track for
1.5°C, compared to US$480 million per year on average in the last decade. 17 Concretely, forevery US$1 spent globally on fossil fuels in 2030, more than US$9 must be spent on “clean
energy”. 18

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In light of the urgent situation explained above, this document lays out essential demands for
asset managers to align with the international goal of limiting global warming to 1.5°C.

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GENERAL RECOMMENDATIONSClimate scenarios to use to limit global warming to 1.5°C
Asset managers shall adopt a climate policy aimed at contributing to the goal of limiting global
warming to 1.5°C, which entails reducing CO2 emissions by about 50% by 2030 and reachingnet-zero CO2 emissions by 2050 at the latest. This plan must be developed based on credible
and robust science-based scenarios.
Alignment and carbon neutrality commitments and pledges mean that asset managers’
emissions targets are based on no or low overshoot 1.5°C pathways with limited use ofnegative emissions. Relying on large quantities of negative emissions increases the risk ofovershooting the temperature target in case carbon capture technologies and solutions are
not deployed or effective at scale and/or do not ensure the permanence of the GHG removals.
In the present document, the term “1.5°C scenario” is used as shorthand for low or noovershoot 1.5°C scenarios with limited use of negative emissions.
When asset managers refer to the Paris Agreement, they shall make it clear that they arealigning with the Agreement’s stronger target of limiting global warming to 1.5°C, not the
weaker "well-below 2°C" objective.
It is recommended to use the following scenarios for referring to 1.5°C global scenarios withno or low overshoot and limited use of negative emissions:•••

One Earth Climate Model (OECM) by the University of Technology Sydney Institute for
Sustainable Futures and supported by the UN-Convened Net-Zero Asset Owner
Alliance (NZAOA). The OECM includes the use of nature-based removals increasingover time to 1.4 GtCO2 per year by 2050 to compensate for cement process emissions.
It does not use technological carbon capture and storage. It includes regional data,and sectoral pathways covering Scope 1, 2 and 3 emissions.
The Net-Zero Emissions by 2050 Scenario (NZE) by the International Energy Agency(IEA). This was first published in May 2021 and updated in the October 2023 World
Energy Outlook. It includes technology-based removals (direct air capture (DAC) andbiomass energy with carbon capture and storage (BECCS)) ramping up to 1.5 GtCO2
per year in 2050. 19
The 26 1.5°C no or low overshoot scenarios published in the IPCC’s 6th Assessment
Report and identified by the International Institution for Sustainable Development(IISD) as not relying on unrealistic amounts of negative emissions. 20

Decarbonization targets
Decarbonization targets adopted by asset managers shall:

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Include interim and long-term targets – The long-term target of net zero emissions by
2050 at the latest shall be accompanied with a target for 2030 consistent with theRace to Zero criterion of a “fair share” of the 50% global cut in CO2 emissions requiredby 2030. An interim target for 2025 should also be set, as is required by the NZAOA. In
advance of 2030, targets should be set for 2035 and 2040.

•

Include absolute and intensity metrics – Targets shall be set in absolute GHG
emission reductions to ensure they result in real-world reductions aligned with 1.5°C
pathways. Absolute targets can be supplemented with both physical- and revenuebased intensity indicators to facilitate comparisons of ambition and progress within
sectors, and between portfolios, financial institutions, and regions. 21•

Cover all material emission scopes – Targets shall cover all investee emission scopes
where these are material. Where data quality is low, proxy or estimated data should be
used as per the methodology of the Platform for Carbon Accounting Financials(PCAF), 22 and asset managers should engage with investees and regulators topromote improved disclosures. As is noted by GFANZ, “Scope 3 should be included at
a minimum for high-emitting sectors, such as the priority sectors identified in the
NZAOA target-setting protocol.” Among these sectors are oil and gas, utilities(including coal), transport, steel, cement, agriculture and forestry, and chemicals. 23•

Differentiate between GHGs – Targets should be set in CO2-equivalent to measure
overall warming impact with separate targets for CO2 and CH4 in the energy sector,
and for other GHGs as relevant for other sectors (e.g., N2O for agriculture, andindustrial gases for relevant industrial sectors). Using only CO2e targets makes it
impossible to measure progress toward reducing individual gases and to compare
targets and progress with scenarios based on specific gases (such as NZE which ismainly CO2 based).

•

Cover all asset classes – Targets shall cover all asset classes for which financed
emissions are material and for which methodologies exist, in particular listed equity
and corporate bonds, business loans and unlisted equity, project finance and private
equity. 24•

Not include offsets – Serious methodological and conceptual problems withoffsetting mean that portfolio and sectoral targets must not be wholly or partially met
with the use of offsets by investees or asset managers. This is consistent with theposition of the Science Based Targets initiative (SBTi).

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Be transparent and accountable – Asset manager transition plans should clearlyspecify target timetables, metrics, scopes, gases covered, and asset classes andsectors included. Transition plans should outline what actions will be taken to meet
the targets, including engagement strategies with financial sanctions. Reporting on
progress toward meeting targets should be done annually and verified by third parties.
If any targets are missed, emission reductions will need to be steeper in future tocompensate.

Key alignment and company assessment resources
While assessing the decarbonisation trajectories of portfolio companies is a relevant exercise,
it is only complementary to robust sectoral policies.
It is recommended to use the following resources for:•••

Building financial institution transition plans in line with a 1.5 °C Scenario:o The recommendations from the UN High-Level Expert Group (HLEG) on net
zero, published during COP27, that provides key criteria for all carbon neutrality
and alignment commitments and plans.
o The criteria of the UN Race to Zero Campaign. The Net Zero Asset Manager
initiative (NZAM) is a partner of Race to Zero, as are all the sectoral alliancesthat make up the Glasgow Financial Alliance for Net Zero (GFANZ).
o GFANZ’s November 2022 report, “Financial Institution Net-zero Transition
Plans: Fundamentals, Recommendations and Guidance.”
Assessing the credibility of the corporate and financial institution transition plans:o The Science Based Targets initiative (SBTi) and its sectoral target-setting
methodologies and validation process. Science-based targets are useful toassess whether companies have set decarbonization targets aligned with theParis Agreement, but are not in themselves sufficient to do so. They do not
ensure that companies are on track to meet these targets, nor that they are
implementing the changes in business models and activities that arenecessary for 1.5° scenarios.
o The Climate Action 100 + benchmark by 5 investor networks (PRI, AIGCC,
Ceres, IGCC and IIGCC). This benchmark provides some useful indicators toassess the credibility of company transition plans, notably regarding carbon
neutrality and intermediate decarbonization targets, climate disclosures,
governance and capex allocation.
o The Assessing Low Carbon Transition (ACT) by the French Environmental
Agency (Ademe) and the CDP. The intent of this methodology is to provide a
granular analysis of company transition plans and their implementation. While
the overall rating attributed does not provide a clear benchmark for alignment
with a 1.5°C trajectory, the methodology contains useful information and datathat can be used to assess the credibility of transition plana.
o The PACTA scenario analysis program, now hosted by RMI.
Assessing the quality of fossil fuel policies adopted by financial institutions:
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o

Reclaim Finance has developed the Coal Policy Tool and the Oil & Gas Policy
Tracker. These analyse the quality of the policies adopted by banks, insurers,
asset owners and asset managers.

Transition Pathway Initiative (TPI) 25 assessments should be used with caution as these
consider that a company has a credible climate policy only by considering the date at which
the level of GHG emissions reaches that of a 1.5°C scenario, whereas for a trajectory to betruly aligned, the entire projected carbon budget must be considered.

What shall a good climate policy contain?
A credible and comprehensive climate policy must be made public and contain a range ofgeneral and sectoral measures, including commitments, restrictions, and exclusions.
The climate policy shall rely on science-based scenarios and databases.
A comprehensive climate policy shall include the following elements:•

Decarbonization targets for financed emissions from portfolios, asset classes, or
economic sectors. These allow asset managers to align their overall activities with the
1.5°C scenarios described above, and with the 50% reduction in CO2 emissions
required by the Race to Zero, based on the findings in the IPCC’s Special Report on
1.5°C and Sixth Assessment Report. For more information, see Decarbonization
targets.

•

Sectoral policies presenting expectations and restrictions, with priority given to themost emitting sectors. Adopting decarbonization targets is by no means sufficient toensure corporate alignment with a 1.5°C scenario. Indeed, the fight against climatechange implies concrete actions with a real impact on the economy and the energy
mix. Thus, the objectives of reducing GHG emissions must be associated withmeasures and indicators that will lead to the decline of the most polluting activities on
the one hand, and the development of alternative solutions on the other. Sector
policies shall clearly and precisely explain what is expected from companies active inthe sector. Policies must also explain the engagement and exclusion measures that
asset managers will implement in order to secure the alignment of investee companies
with these expectations.

•

In addition to restrictive measures, asset managers shall, through comprehensive
engagement and vote policies, use all available levers of influence to encourage theirportfolio companies to commit to credible climate transition plans in line with 1.5°C
scenarios with low or no overshoot and a limited volume of negative GHG emissions.
Specific engagement measures shall be also included in all sectoral policies andassociated with time-bound demands and a clear and systematic escalation strategy(See “Engagement & voting policies” below).

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Governance, executive remuneration and lobbying policies. which must be madeconsistent with the overall climate policy.

Scope of application of the climate policy
The climate policy should apply to all assets under management, including those managed bysubsidiaries. This means that the policy should cover all portfolios under management,
including passive funds, and including dedicated funds and third-party mandates, unless theclient has given different instructions, or the fund has been exempted for risk management
reasons.
For mandates, the climate policy shall apply by default, with an opt-out option for clients preferable to an opt-in option 26.
For passively managed funds, while there is less leeway for existing index funds than for
actively managed funds, there is still room for action. Asset managers shall: Commit to not launch any new index funds that would not be able to meet the criteriaof the climate policy.
 Implement several measures for existing passive funds, such as:→ A commitment to not purchasing primary debt/IPO securities of the companies
facing investment restrictions in active funds, until they are included in theunderlying index of the relevant funds, as it would allow exposure to primarydebt/IPO securities to be added to the funds via the secondary market and not
the primary market.
→ The climate policy shall plan systematic and immediate voting sanctions forany companies in passive funds that are facing investment restrictions in
active funds.
→ A commitment to offer incentives for asset owners to switch funds (and pickcoal-free alternatives).
→ A commitment to change the indices of all passive funds by a given date, inorder to use only indices that do not contain the companies excluded from
active funds.
 In association with other Asset managers, require index providers to identify andexclude coal laggards from all standard indexes.
Any exceptions to the policy should be limited in scope, limited in time, publicly disclosed,
justified, and detailed. They should be accompanied with a time-bound engagement period toquickly bring the portfolio company in line with the climate policy.
A list of companies benefiting from any climate policy exemptions should be publishedannually.
Any update of the climate policy shall be accompanied by a communication on its impact on
the portfolio, notably in terms of funds, share of the portfolio and nature of the companies
affected by the new exclusion thresholds, or by any change coming from the data provider.
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Engagement & voting policies
Overall framework
Asset managers shall adopt engagement and voting policies in addition to sector policies,
even though sector policies should also include engagement measures specific to thecompanies and issues in question.
Voting policies should be separate from engagement policies. Voting policies are necessarily
very detailed - in order to foresee all the scenarios that may arise - and include considerations
that are not related to the content of the engagement policy (pure governance issues, financial
issues, etc.).
It is desirable to separate engagement and voting policies from engagement and voting
activity reports. This good practice makes it possible to clearly differentiate between what ispart of a generally applicable strategy based on objectives, criteria and processes set ex ante,
and ad hoc, one-off behavior identified ex post by an investor.

The overall engagement policy
A rigorous engagement policy must be accompanied by objectives and an evaluation
framework. It is therefore necessary for the engagement policy to include: An assessment of the current situation of the portfolio in relation to the engagement
requests. This involves setting an objective benchmark against which theimplementation of the policy will be assessed.
 Quantified and time-bound targets for changing this initial situation through effective
engagement.
 A clear transparency framework, including :→ The frequency and format of publication of investor votes (and whereappropriate, explicitly stating the reasons for not providing full transparency on
this activity).
→ The frequency and format of publication of engagement reviews.
The credibility of the engagement policy relies on formulating public, precise and impactfuldemands and on the robustness of its implementation strategy. The more precise, phasedand diversified the strategy, the more likely the initial dialogue will be successful. Indeed,engagement targeting the right outcomes can rapidly prove ineffective if does not follow a
clear escalation strategy and can even delay climate action if it goes on for a prolonged period
without achieving its outcomes.

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Several levers of influence can be mobilised to ensure the asset managers exercise sufficientleverage over investees. The way in which these policy levers are used in a stopover strategy
is left to the discretion of the asset managers and may change depending on the sector or
geographical area targeted by the commitment.
It is recommended to include in the engagement policy the following graduated hierarchy ofpossible actions:
1. Dialogue with CSR and investor relations departments, senior management, and board
members.
2. Send private letters and questionnaires.
3. Act in coalition with other investors.
4. Oral questions put to the Annual General Meeting (AGM).
5. Abstain from voting on a resolution, depending on the subject covered by the
resolution.
6. Send public letters and exercise other forms of public pressure.
7. File a shareholder resolution in coalition with other investors.
8. Vote against management-led resolutions depending on the subject covered by the
resolution (see details in sectoral policies).
9. Pre-declare voting intention and rationale before the AGM. 27
10. Restriction of investment in companies (suspending new investment and/or
divesting).
11. Total exclusion of the company by selling all shares in portfolio.
12. Litigation.
In case of dialogue failure, the engagement and voting policy shall include an escalation
strategy, where requirements triggering the sanctions listed above are clearly defined. This
strategy includes, at least:••

The hierarchy between the various engagement levers and sanctions, including atimeline for their implementation (Which one would be activated first? What would
follow? When?)
The conditions to be met by the investee company to escape each of the sanctions
that can be activated, including the conditions to avoid the suspension of all new
investment (Why and when the subsequent sanction would be activated?)

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Structure of an escalation strategy:
Demands
What to expect from the Timeframe
portfolio company?
From Date 1
Demand 1
From Date 2
From Date 1
Demand 2
From Date 2
From Date 3
Demand 3
From Date 1

Type of action
What is the action taken in case thedemand is not met at Date X?
Action 1
Action 2
Action 1
Action 2
Action 3
Action 1

The activity report
Asset managers shall report against the framework presented in the engagement policy.
Current reporting methods, which tend to be too focused on activity indicators (number ofcompanies involved, number of meetings held, voting rate for ESG resolutions, etc.), should
be changed to a more results-oriented approach.

Nota bene
Because effective engagement is resource-intensive and cannot be achieved with allcompanies, and because some companies are not particularly suited to engagement, asset
managers should clarify in all policies the minimum conditions that companies must meet to
be engaged.
The purpose of this engagement and voting policy is to provide systematic practices. It avoids
case-by-case engagement practices through informal ad-hoc channels.

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ENERGY SECTOR IN GENERAL
Company databases to be used
For their sectoral coal policies, asset managers shall use the Global Coal Exit list (GCEL),
updated annually by Urgewald. This list gives access to information about 2,800 companies
playing a significant role in the thermal coal value chain (coal miners, coal power producers,
companies involved in coal exploration, processing, trading, transport, logistics, engineering,transmission, equipment manufacturing, coal to gas/liquids production, coal-related services
in operation & maintenance/mining/procurement and construction/advisory, undergroundcoal gasification, and other coal-related activities), which meet at least one of the following
criteria:••••

Companies with coal power, coal mining or coal infrastructure expansion plans.
A coal share of revenue or power production of at least 20%.
An annual thermal coal production of at least 10 Mt.
An installed coal-fired power capacity of at least 5 GW.

These thresholds will be lowered to 10% at the end of 2023 for the next update of the GCEL.
The GCEL includes information on companies planning the addition of an annual productionof 2500 Mt of coal, and 476 GW of new coal power capacity. It also covers companies withplans to build new coal infrastructure such as ports or railways which can be instrumental in
the opening of new coal basins. Companies with expansion plans shall be the first ones to be
excluded since any new coal project is incompatible with a 1.5°C scenario. This allows
financial players not only to take measures aimed at protecting themselves against financial
risks, but also allowing them not to contribute to the aggravation of the climate crisis.
The GCEL also covers companies above a specific relative threshold, referring to the share of
their activity in the coal sector, regardless of their size. The metrics used for power companies
are the share of coal power generation for power companies first, the closest to the realclimate impact of a company, and then the share of power capacity in the absence of the first
metric. The last metric used is the share of revenues of the company, if the two first metrics
are not available, because it is less relevant to the real climate impact of the company and canvary considerably from one year to another. The share of revenues is the only metric used forother coal-related companies such as coal mining or coal infrastructure companies. These
different metrics are important because the use of different metrics can have an important
impact on the number of companies covered by a specific threshold.
To be able to cover companies whose share of activity in the coal sector is low, but which
produce large quantities of coal or coal-fired electricity in absolute terms, the GCEL also uses
absolute thresholds for the coal mining and coal power sectors. The metric used for coalmining is the annual amount of coal produced in million tonnes per year (Mtpa). The metricused for coal power is the coal power capacity.

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For their sectoral policies in oil and gas upstream and midstream sectors, asset managers
shall use the Global Oil & Gas Exit list (GOGEL), updated annually by Urgewald. This databasegives data on the activities of oil and gas companies according to the following criteria:
•
•
•
•
•
•
•
•

Total oil and gas production.
Unconventional oil and gas share of production.
Total short-term expansion plans.
Share of unconventional oil and gas short-term expansion plans.
IEA NZE expansion overshoot
Capital expenditures on oil and gas exploration.
Fossil fuel share of revenue.
Reputational risk projects.

Other databases provided by private market players could be used in addition to the GCEL and
GOGEL, in particular to cover the downstream of the oil and gas sector. However, werecommend asset managers to use them with caution: forward-looking data about the
expansion plans of companies and their activities in some unconventional oil and gas sectors
might be missing, as well as granular information necessary to identify the relevant corporate
level (group and subsidiaries) exposed to a specific activity. Asset managers should also
make sure that the definitions used match their own policies.

Points of attention for the oil and gas sector
In order to evaluate a company’s exposure to a specific sector, its impact on that sector andits decarbonization pathways within that sector, it is recommended to use a metric based on
absolute values (mmboe in production or in reserve, tCO2e in scope 1, 2 and 3, etc.). 28 Relativevalues (% of revenue, % of number of companies, % of GHG emissions, % of power assets firedby coal or with more than X gCO2e/kWh in average, etc.) can eventually be used as anadditional indicator applicable to the whole value chain or for specialized companies (joint
ventures dedicated to a specific project, oil and gas service companies, mining or coal powercompanies, etc.).
When asset managers have adopted measures related to unconventional oil and gas, it isrecommended to use a definition matching the one used by the GOGEL, which includes thefollowing sectors:
•
•
•
•
•
•

Extra heavy oil (API gravity index < 15)
Tar sands
Coal bed methane
Fracking
Ultra-deep offshore oil and gas (depth > 1,500 meters) 29
Oil and gas resources located in Arctic area as defined by the Arctic Council’s
Assessment and Monitoring Programme (AMAP) 30

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Asset managers could also rely on the definition recommended by the Scientific and Expert
Committee of Paris’ Observatory of Sustainable Finance 31, which also includes tight oil andgas, 32 gas hydrates, 33 and oil shale.
Where the oil and gas sector policy refers to the upstream, midstream and downstream
sectors, particularly in the expectations for portfolio companies’ climate transition plans, thebreakdown of associated activities to which it applies shall be read as follows. 34
Upstream
Exploration
Drilling
Production
Processing

Midstream
Transportation by rail, road,pipeline, and shipping
Pure trading
Storage
Gas Liquefaction
LNG regasification

Downstream
Oil Refining
Distribution
RetailUse (power, heating, etc.)
Energy efficiency services

Where the oil and gas sector policy refers to Scope 1, 2 and 3 GHG emissions, particularly inthe expectations for portfolio companies’ climate transition plans, the breakdown of thedifferent associated emissions sources to which it applies is as follows:

Source: ACT Methodology for the Oil and Gas sector (ADEME, CDP)

Definitions
This section provides definitions of some important terms used in this document.
Company in transition – A company with a credible decarbonization plan aligned with a 1.5°C scenario with low or no overshoot and a limited volume of negative GHG emissions,
including at least a comprehensive and public climate transition plan, and respecting key
milestones such as the end of fossil fuel expansion.

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Climate transition plan (for companies) – A set of commitments, implementation andmonitoring measures undertaken by a company to contribute to the fight against global
warming. Such a policy must be comprehensive and credible and shall aim at contributing tolimiting global warming to 1.5°C with low or no overshoot and a limited volume of negative
GHG emissions. The plan should be sufficiently legible to be easily assessed by asset
managers.
Climate policy or climate transition plan (for asset managers) – A set of general and sectoral
policies adopted by asset managers to publicly detail how they intend to decarbonise theirportfolios along a 1.5 °C scenario with low or no overshoot and a limited volume of negative
GHG emissions. This shall include, at least, short-, medium- and long-term decarbonisation
targets, systematic engagement, voting, governance, and good lobbying practice policies, aswell as sectoral engagement, and restriction measures (see What shall a good climate policy
contain?).
Coal developer – Companies are identified as coal developers if they meet at least one of thefollowing criteria:•••

Mining: companies engaged in coal exploration activities, planning to develop newcoal mines, extend their coal mines by applying for new permits or that are involved incoal exploration activities.
Power: companies planning to develop new coal-fired power capacity of at least 100
MW prorated (based on a company’s ownership of a project, or on the number ofcompanies involved in a project).
Services: companies involved in the development or expansion of coal transportation
assets or infrastructure assets dedicated to support coal mines, coal transportationand coal-to-gas facilities.

Such companies are listed in the “Expansion” criteria of the Global Coal Exit List.
•••

Companies extending the lifetime of existing coal mines and/or coal plants.
Companies purchasing existing coal assets.
Companies selling services or equipment supporting coal expansion.

Oil & gas developers - Companies intending to add oil and/or gas resources to theirproduction capacities in the short term (at least 20 mmboe of resources to their production
portfolio in the near future), i.e. resources associated with assets under development and field
evaluation (the two stages preceding production), or in the long term by their involvement in
exploration activities, or II) companies with oil and/or gas pipelines or LNG terminals proposedor under construction.
Exclusion – A measure consisting of the total exclusion of a type of activity, company, or
project from a financial portfolio and/or financial service offerings. The date and modalities
of entry into force of such a measure must be precisely defined.

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Infrastructure coal project – Transportation assets or infrastructure assets dedicated tosupport coal mines, coal transportation and coal-to-gas facilities.
New upstream oil and gas projects – Exploration or development of new oil and gas fields(i.e. fields that are not yet in production), or the redevelopment or expansion of existing fields
already in production.
New midstream oil and gas projects – Development of new oil and gas transportation andstorage infrastructure.
Power producer – Company involved in the production of electricity, either as a utility or as noperator of power generation facilities.
Restriction – A measure consisting of the partial exclusion of a type of activity, business or
project from the financial portfolio and financial service offerings (e.g., ending some but not
all financial services to these activities, or excluding them from a type of assets but not all).
The restriction may be related to being temporary, being subject to a threshold or having
specific exemptions.
Sustainable power – In contrast to “unsustainable power”, this means electricity production
or storage from renewable energy sources by installations with limited climate andenvironmental impact throughout the value chain, including in the future.
Unabated power plant – Power plant with no facilities to capture GHG emissions during
operation.
Unsustainable power – In contrast to “sustainable power”, this means electricity productionthat has a significant impact on the climate and the environment throughout the value chain
in which it operates, including in the future. This includes nuclear, industrial-scale biogas andbiomass-fired power plants, hydropower plants that do not comply with the recommendationsof the World Commission on Dams 35, and any form of hydrogen that is not produced directlyfrom renewable energy source (or “green hydrogen”).

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COAL SECTOR
General sector overview
The coal sector is a long way from aligning with 1.5 °C and even continues to expand. Today,
2,400 coal-fired power plants are in operation, with a total capacity of nearly 2,100 GW. 36
Global coal use is set to rise by 1.2% in 2022, surpassing 8 billion tonnes in a single year for
the first time and eclipsing the previous record set in 2013. 37 476 GW of new coal-fired power
capacity are still in the pipeline worldwide (enough to increase the world’s current coal power
capacity by 23%), 61% of this in China. 38
Only 27 of the 1,064 listed in the Global Coal Exit List have announced coal exit dates alignedwith a 1.5 °C scenario, and 490 of them still plan to develop new coal assets. 2,500 Mtpa of
new coal mining capacity is in the pipeline worldwide (37% of the world’s current thermal coalproduction), with 39% of this in China. 39
Any delay in phasing out coal would jeopardize meeting the 1.5°C target and significantly
increase financial risks. Coal companies risk wasting more than US$1.4 trillion in stranded
assets under a 1.5°C scenario. 40 42% of global coal power plants already run at loss, this could
rise to about 50% of the thermal coal capacity by 2030, and 72% would be unprofitable by2040. In a “below 2°C” scenario, investors and governments would likely face over US$267
billion in stranded assets. 41
Beyond its major contribution to global warming, coal poses serious environmental and publichealth issues: air pollution from outdoor sources caused more than four million premature
deaths in 2021 (85% of which were in emerging and developing countries), and coal was
responsible for over 60% of global SO2 emissions. 42 The IMF estimated the world can realize
a global net social benefit equivalent to US$85 trillion by phasing out coal. 43

Overall objectives
According to the IPCC, 44, UNEP 45 and the IEA, 46 for the coal sector to be aligned with theobjective of limiting global warming to 1.5°C, several conditions must be met.
•••

The development of coal mines must stop immediately: 89% of coal reserves provenin 2018 must remain unextracted in 2050. 47 Therefore, no new coal mines must be
developed, and the lifetimes of existing mines must not be extended. 48
Investment in coal supply must fall by 75% from 2021 to 2030, with the remaining coalrelated investment focused on maintaining production at existing mines and on
reducing their emissions intensity while waiting for definitive closure.
Coal demand must fall by 45% by 2030, and by 90% by 2050 (reaching 540 million
tonnes of coal equivalent (Mtce)) 49 and all coal power plants must be closed by 2030
in advanced economies and by 2040 worldwide. 50 As a result, coal trade must decline
to about 50% its current level by 2030, and 90% by 2050. 51

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Coal mine methane emissions must decline about 70% from 2021 levels by 2030 andabout 95% by 2050. 52. This result can only be achieved through large-scale mineclosures. 53

What to expect from companies
Asset managers shall expect portfolio coal companies not to have any coal expansion plan,and to adopt a credible and public coal phase-out plan aligned with a 1.5°C scenario. Such aplan shall include, at least, the following indicators: 54
 A commitment to close all the global coal facilities in the OECD and European
countries by 2030, and globally by 2040.
 No expansion plans.
 Facility-by-facility closure dates. 55 Assets shall not be sold or converted to fossil-based
activities or biomass.
 Just and sustainable transition plans, including guarantees concerning the capacity tofund and implement all worker and environmental obligations (decontamination,
retraining, infrastructure decommissioning, etc.) 56
 A commitment not to open any new met-coal mine or to expand any existing met-coalmine.
In case the facility is not closed but sold, asset managers shall expect strong guarantees fromthe coal company that the new owner will:•••

Close the facility before 2030 if it is located in the OECD or European countries, orbefore 2040 elsewhere.
Not convert coal plants to fossil fuel-fired or biomass-fired plants.
Provide sufficient financial means and measures to ensure that all social andenvironmental obligations are duly met.

In case the facility is not closed but converted to another use, asset managers shall expect
strong guarantees from the coal company that:•••

A comparative analysis shows that this conversion is economically, ecologically,financially, and technically more advantageous than closure or replacement by
renewable energies with equivalent production capacity.
An environmental and climate impact assessment demonstrates that the conversion
will not result in increased GHG emissions across the value chain (and not just at the
combustion stage).
A closure deadline consistent with a 1.5°C scenario with a just and sustainabletransition plan, including guarantees concerning the capacity to fund and implement
all worker and environmental obligations. 57

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Claims of future retrofitting with carbon capture and storage (CCS) or conversion to fossil gas,
biogas, hydrogen, biomass, or ammonia co-firing shall not be used to delay coal-fired plantclosures. 58
Asset managers shall not consider a decarbonization target or a net-zero commitment as a
substitute for a credible coal phase-out plan, regardless of their validation by the SBTi.

Recommendations on targeted restrictions
Asset managers shall adopt time-bound restrictions on coal companies, with the aim ofpreventing the expansion of the coal sector and supporting its phase-out. Achieving thesemeasures will require asset managers to: Make public their expectations from coal companies and associated exclusions.
 Implement an engagement policy towards the relevant companies to induce them tomeet expectations.
 Implement a progressive escalation strategy that would ultimately lead to a full
exclusion in case the expectations are not met.
Asset managers shall immediately end support to coal expansion by: Excluding companies which participate in the expansion of the coal sector (seedefinition in “General Recommendations”).
 Ceasing all new investment in coal mines, plants, or infrastructure projects.
Asset managers shall commit to have no further portfolio exposure to coal projects andcompanies active in OECD and European countries by 2030, and by 2040 worldwide.
Asset managers shall adopt timed exclusions to progressively reduce their exposure to thecoal sector and encourage companies that remain in the portfolio to reduce their coal
activities and aim for full exit:
 Immediate exclusion of companies which derive more than 10% of their revenues fromcoal mining, and of companies which produce annually more than 10 million tons ofcoal. 59
 Immediate exclusion of companies which derive more than 10% of their power
production or installed power capacity from coal, and of companies with more than 5
GW of coal-fired power capacity. 60
Until December 2024, companies that are above these exclusion thresholds may be exempted
if they demonstrate their practical ability to move below the exclusion thresholds in the shortterm through the implementation of a credible and public coal phase-out plan.
 Commitment to reduce the relative and absolute exclusion thresholds used in the coal
policy to zero, with the aim to exit completely from coal by 2030 in OECD and European
countries, and by 2040 worldwide.

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 Immediate commitment to exclude by 2027 companies that do not have a credible andpublic phase-out plan, aligned with a 1.5°C scenario, which includes, at least:→ A detailed asset-by-asset closure (and not selling) timetable aligned with theobjective to exit from the coal sector by 2030 in OECD and European countries,
and by 2040 worldwide.
→ A just and sustainable transition plan for workers, local communities, and theenvironment. 61
 Immediate commitment not to make any new investments:→ From 2024, in companies with no public commitment to phase-out their coal
activities by 2030 in OECD and European countries, and by 2040 worldwide.
→ From 2025, in companies with no detailed asset-by-asset closure (and not
selling) timetable aligned with the objective to exit from coal by 2030 in OECDand European countries, and by 2040 worldwide.
→ From 2026, no new investment in companies with no credible coal phase-out
plan aligned with a 1.5 °C scenario, completed with a just and sustainabletransition plan for workers, local communities, and the environment. 62
 Immediate commitment to exclude any company that sells (and does not close) a coalasset, unless the new owner offers sufficient guarantees that the asset will be closed
by 2030 in OECD and European countries, and by 2040 at the latest elsewhere via ajust and sustainable transition plan for workers, local communities, and theenvironment. 63
An exception to the above measures may be made for the financing of activities or
subsidiaries dedicated to the energy transition (e.g., the deployment of renewable energy).
Dedicated funding (for example via use of proceeds bonds) must be explicitly earmarked andmust not be used for other activities. More specifically, an exception could be tolerated forgreen bonds or other sustainable use of proceeds bonds if the issuer's definition of green isrigorously verified. A Second Party Opinion on the issuer's framework alone does notguarantee the sustainable attributes of these debt instruments. It is recommended for asset
managers to have a public framework that clearly defines the projects they may finance withsustainable debt market instruments and to verify the compatibility of the overall strategy of
the issuer with their own commitments.
This exception must remain temporary, and only apply for the time needed for the company
to align its corporate strategy with a 1.5°C scenario. Sustainability linked bonds (SLBs) cannot
be subject to such an exception because they benefit the whole company, including its dirty
activities.
N.B.: These recommendations come on top of the recommendations made in “Power sector”
and “Engagement and voting policies”.
N.B.: Asset managers shall disclose the database used to evaluate the companies exposedto the coal sector. It is therefore recommended to use the GCEL (For more information, see“Companies database to be used” above).

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OIL & GAS SECTOR
General sector overview
Over half of global emissions are related to the production or use of oil and gas
Instead of aligning with the 1.5 °C, oil and gas companies are continuing to develop massive
new capacity for oil and gas production and transport. In 2022, investment in upstreamincreased by 13% compared to 2021. 64 According to the IPCC, cumulative capex/opex for the
exploration and extraction of oil and gas in new fields is expected to reach more than US$4.2
trillion in total between 2020 and 2030 and climb to US$570 billion annually by the end of thedecade. 65
The massive gap between industry projections of oil and gas production trajectories and a
1.5°C scenario increases related financial risks: over $1 trillion of oil and gas assets risk
becoming stranded if climate actions are taken and alternative energy sources aredeveloped. 66

Overall Objectives
According to the IPCC, UNEP and the IEA, for the oil and gas sector to be aligned with a 1.5°C
scenario, the expansion of oil and gas production must stop immediately. No exploration for
new resources is required, and no new oil fields are necessary, beyond those alreadycommitted as of 2021. No new fossil gas fields are needed beyond those already underdevelopment. Many of the LNG facilities currently under construction or at the planning stage
are not needed.
According to the IEA’s World Energy Outlook 2022, declining demand for oil and gas in their
NZE scenario can be met “through continued investment in existing production assets without
the need for any new long lead-time projects.” 67 In the NZE, fossil gas demand drops from4,200 billion cubic meters (bcm) in 2021 to 3,300 bcm in 2030, and 1,200 bcm in 2050. Oil
demand drops from 95 million barrels per day (mb/d) in 2021 to 75 mb/d in 2030, and to lessthan 25 mb/d in 2050. 68
Investments in oil and gas decline even faster than demand in the NZE, falling by around 50%
from the 2017-21 average through 2030 for both oil and fossil gas. 69 Continued investment inexisting fossil fuel operations is needed to reduce their emissions-intensity, especially of
methane. Energy-related methane emissions drop by 75% by 2030 in the NZE through reducing
leakage and venting and decreasing fossil fuel extraction. 70

What to expect from companies
Asset managers shall expect oil and gas companies operating in upstream and midstream
sectors to commit to cease their expansion plans and to meet, in the short-term, the following
minimal criteria:

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 Immediately commit to a 2050 net-zero objective based on a 1.5°C scenario.
 Meet milestones, including:→ End of new upstream and midstream oil and gas projects.
→ Adoption of oil AND gas production reduction targets by 2030.
→ Allocation of most of capex to sustainable power. 71
 Adopt a comprehensive climate transition plan that allows investors to assess itsalignment with a 1.5°C with low or no overshoot and a limited volume of negative GHG
emissions.
 Commit to submit the above-mentioned plan and an assessment of its ongoing
implementation in recent years to an annual vote (“Say on Climate”) at the AGM.
A comprehensive climate transition plan shall include, at least, the following indicators:
 Short- and medium-term GHG emissions reduction targets on Scopes 1, 2 and 3,
expressed in both absolute and intensity terms, encompassing all its activities.
 Possible contribution of captured GHG volumes to achieving emissions reduction
targets.
 Any carbon offsetting approaches that may be implemented to complement the
reduction targets.
 Targeted energy mix evolution for short- and medium-term.
 Short- and medium-term capex plans disaggregated by activity and by allocation
between maintenance and development of the Company’s assets.
 Short- and medium-term opex disaggregated by activity and by cost item.
 Explanation of baseline scenario used to set decarbonization targets and how thistakes into account the best available ce.
 Envisaged actions to reduce methane emissions along the value chain, including
flaring, leakage control and venting. 72

Recommendations on targeted restrictions
Asset managers shall adopt time-bound restrictions on a growing number of oil and gas
companies, with a focus on halting expansion, as well as initiating a controlled decline in oil
and gas production. Achieving these measures will require the asset manager to: Make public its expectations from oil and gas companies and associated exclusions.
 Implement an engagement policy towards the relevant companies to induce them tomeet expectations.
 Implement a progressive escalation strategy that would ultimately lead to investment
restrictions and exclusions in case the expectations are not met.
Asset managers shall adopt restrictive measures over time to induce oil and gas companies
to stop their oil and gas expansion plans:

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 Immediate commitment to exclude by 2025 all companies that are still involved in new
upstream and midstream oil and gas projects. In the meantime, the engagement policy
must be sufficiently robust to ensure that companies adopt a plan to cease fossil fuelexpansion and adopt a plan to reduce fossil fuel production.
 Immediate commitment not to make any new investment in companies still involvedin new upstream and midstream oil and gas projects.
Asset managers shall commit to reducing their portfolio exposure to oil and gas companies
to close to zero by 2050 worldwide.
Asset managers shall adopt restrictive measures over time to gradually reduce their exposure
to oil and gas companies and to induce these companies to undertake a managed decline in
oil and gas production and operation by: Immediately making new investments conditional on a commitment by the oil and gas
companies to a net zero target by 2050 aligned with a 1.5 °C scenario.
 From 2024, making new investments conditional on a commitment by the oil and gas
companies to adopt:→ Reduction targets by 2030 in oil AND gas production.
→ A comprehensive climate transition plan that allows investors to assess it
against a 1.5 °C scenario as a benchmark.
→ This climate transition plan is submitted to an annual vote at the AGM (See“Say on Climate”)
An exception to the above measures may be made for the financing of activities or
subsidiaries dedicated to the energy transition (e.g. the deployment of renewable energy).
Dedicated funding (for example via use of proceeds bonds) must be explicitly earmarked andmust not be used for other activities. More specifically, an exception could be tolerated forgreen bonds or other sustainable use of proceeds bonds if the issuer’s definition of green isrigorously verified. A Second Party Opinion on the issuer’s framework alone does notguarantee the sustainable attributes of these debt instruments. It is recommended for asset
managers to have a public framework that clearly defines the projects they may finance withsustainable debt market instruments and to verify the compatibility of the overall strategy of
the issuer with their own commitments.
Any exception must remain temporary, and only apply for the time needed for the company toalign its corporate strategy with a 1.5°C scenario. SLBs cannot be subject to such an exception
because they benefit the whole company, including its dirty activities. In the case when apolicy is adopted on unconventional fossil fuels, asset managers shall apply it to the activities
and products listed in the comprehensive definition given in the “General Recommendations”,
and they shall stop investing in companies that: Produce more than 25% of their oil and gas from unconventional resources, andcommit to lowering this threshold to 5% by 2030.
 Are still involved in new unconventional oil and gas projects.

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Specific recommendations for passive funds:
 Stop the launch of any new passive funds if they contain companies covered by theexclusion criteria mentioned above.
 For existing passive funds, change, in the short-term, the underlying indexes to use
only those indexes that exclude companies developing new upstream and midstream
oil and gas projects.
 Publish the progress of this conversion and the expected date from which all passive
funds shall be converted.
 Publicly engage the index providers to facilitate the identification of developing
companies within their standard indexes, and to offer alternatives.
N.B.: These recommendations are specific to oil and gas upstream and midstream activities
and shall be read and implemented in addition to other sets of recommendations, including
the those given in “Engagement & voting policies”.
N.B.: Asset managers shall disclose the database used to evaluate the companies exposedto the coal sector. It is recommended to use the GOGEL (For more information, see“Companies database to be used” above).

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POWER SECTOR
General sector overview
Coal-fired power generation is one of the highest emitting sectors in the world. Although manyfinancial actors have already adopted restrictions on coal power funding, there are still 476
GW of new coal-fired power capacity still in the pipeline worldwide, 61% of this in China. 73
It is estimated that 42% of global coal power plants now run at a loss, and this numbers is
projected to rise to 50% by 2030. By 2040, 72% will be unprofitable. Even with a “below 2°C”
scenario, investors and governments will likely face over US$267 billion in stranded assets. 74
Despite its repeated depiction over the past couple of decades as a “clean alternative” to coal,fossil gas power emits high levels of GHGs, particularly when methane emissions from its
production and transport are considered. A fossil gas combined-cycle plant can emit 403 to
513 gCO2e/kWh from a life cycle perspective compared to 751 to 1095 gCO2e/kWh for coal
power. 75
In 2022, for the first time, global energy transition investments equalled fossil fuels
investments. 76 The significant shift toward “clean energy” is a trend unlikely to be reversed as
the energy world entered what the IEA describe as “a new industrial age – clean energy
manufacturing age”. 77

Overall objectives
According to the IPCC, the UNEP and the IEA, for the power generation sector to be alignedwith a 1.5°C scenario, fossil fuel-fired power capacity must stop expanding and all unabatedplants should be closed by 2040 worldwide. In the OECD and Europe, coal-fired plants should
be closed by 2030 and fossil gas-fired plants by 2035. 78 There must be an immediate halt toapprovals for new unabated coal-fired power plants. 79. No new unabated fossil gas-fired
power plants shall be built since fossil gas-fired power plants commonly have an operational
lifetime of at least 30 years. 80.
Investments in the power sector must be massively reoriented from fossil fuels toconservation, energy efficiency, and renewable energy. To meet the IEA’s NZE scenario, forevery one dollar spent globally on fossil fuels by 2030, at least nine dollars must be invested
in what the IEA classifies as “clean energy and efficiency investments”. 81 In the NZE, 40% ofelectricity generation comes from wind and solar by 2030 when annual capacity additions of
all renewables reach 1,200 GW compared to the 290 GW renewables capacity installed in
2021. To achieve this, the annual spending on “clean energy investments” (energy efficiency,clean fuels and clean power, network and storage) needs to reach USD 4.2 trillion in 2030.
This requires a larger contribution from the private finance than seen today: whereas public
spending currently plays a larger role, private capital will account for nearly 60% of global clean
energy spendings (85% in advanced economies) by 2030. 82

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What to expect from companies
Asset managers shall expect portfolio utilities and power generation compagnies to meet thefollowing minimal criteria:
 Immediate commitment to a net zero by 2050 objective aligned with a 1.5°C scenario.
 Immediately stop coal expansion plans and commit to meet in the short-term thefollowing milestones:→ Stop new unabated fossil fuel-fired and biomass-fired plants.
→ Commit to end coal-related activities by 2030 at the latest in OECD and
European countries, and by 2040 worldwide.
→ Commit to bringing fossil gas-related activities close to zero by 2035 at thelatest in OECD and European countries, and by 2040 worldwide.
→ By 2030, for every dollar of capex investment spent in fossil fuel-fired power
sector, at least 4 dollars shall be invested in sustainable power (See definition
in “General Recommendations”). 83 This ratio shall be increased to 1:9 if it
includes production, storage, transport and energy efficiency measures. 84
 Adopt a comprehensive climate transition plan that allows investors to assess itsalignment with a 1.5°C scenario.
 Commit to submit the above-mentioned plan and an assessment of its ongoing
implementation to an annual vote (“Say on Climate”) at the AGM.
The climate transition plan shall include, at a minimum, the following indicators:
 Short-and medium-term GHG emissions reduction targets on Scopes 1, 2 and 3,
expressed in both absolute and intensity emissions, encompassing all activities.
 Possible contribution of captured GHG volumes to achieving emissions reduction
targets.
 Carbon offsetting approaches that may be implemented to complement the reduction
targets.
 Targeted energy mix evolution over short and medium terms
 Short- and medium-term capex plans disaggregated by activity and by allocation
between maintenance and development of any new assets.
 Short- and medium-term opex disaggregated by activity and by cost item.
 Explanation of baseline scenario used to set decarbonization targets and how thistakes into account the best available science.
Asset managers shall require corporate climate transition plans to include a credible plan for
dated closures of unsustainable assets, detailed on a facility-by-facility basis. These closures
must be planned at a pace consistent with a 1.5°C scenario and accompanied by justtransition plans, and funding for implementing all social and environmental obligations. 85
In case the plants are not closed but sold, asset managers shall expect strong guarantees
from the power producer that any new owners will:

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 Close any coal plant before 2030 and any fossil gas-fired plant before 2035 if it islocated in the OCED or European countries, or before 2040 elsewhere.
 Not convert any plants to other fossil fuels or biomass.
 Provide sufficient financial means and measures to ensure that all social andenvironmental obligations are met.
In case the plants are not closed but converted to other technologies, asset managers shallexpect strong guarantees from the power producer that: A comparative analysis shows that this conversion is economically, ecologically,financially, and technically more advantageous than closure or replacement by
renewable energies with equivalent production capacity.
 An environmental and climate impact assessment demonstrates that the conversion
will not result in increased GHG emissions across the value chain (and not just at the
combustion stage).
 A closure deadline consistent with a 1.5°C scenario, with a just and sustainabletransition plan, including the guarantees concerning the capacity to fund andimplement all workers and environmental obligations. 86
Claims that a future power plant will be retrofitted with carbon capture and storage (CCS) or
conversion to “low-carbon energy sources” (such as biogas or hydrogen 87) shall not be used
to delay a fossil fuel-fired plant’s closure. 88
Asset managers shall not consider a decarbonization target or a net-zero commitment as a
substitute for a credible coal phase-out plan.

Recommendations on targeted restrictions
Asset managers shall adopt time-bound restrictions on an increasing number of fossil fueland unsustainable power projects and companies, aiming to prevent the expansion of fossil
and unsustainable assets in the power sector, while supporting their progressive phase-out.
Achieving these measures will require the asset manager to: Make public its expectations from power generation companies and utilities, and any
associated exclusions.
 Implement an engagement policy towards the relevant companies to induce them tomeet expectations.
 Implement a progressive escalation strategy that would ultimately lead to a full
exclusion in case expectations are not met.
Asset managers shall adopt restrictive measures over time to induce companies to stop theirfossil and unsustainable expansion plans in the power sector:
 No new investment in fossil, unsustainable and biomass power plants.
 Exclusion of companies still involved in new coal plants.

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 No new investment in companies with no commitment not to develop new fossil fueland biomass plants (an exemption to this restriction may apply until 2025 forcompanies subject to engagement from investors through Climate Action 100+).
Asset managers shall commit to have no further portfolio exposure to fossil fuel-fired andunsustainable power plants according to the following timeframe: Unabated coal-fired power plants in OECD and European countries by 2030.
 Unabated fossil oil- and gas-fired plants in OECD and European countries by 2035.
 All unabated fossil fuel plants by 2040 worldwide.
Asset managers shall adopt restrictive measures over time to gradually reduce their exposure
to these activities, while encouraging compagnies to plan a phase-out of their assets andsupport renewable energy development by committing to: Immediate exclusion of companies which derive more than 10% of their power
production or installed power capacity from coal, and of companies with more than
2.5 GW of coal-fired power capacity. 89
 Immediately making new investments conditional on a commitment by the power
producers to the adoption of a net zero target by 2050 aligned with a 1.5°C scenario.
 From 2024, making new investments conditional on a commitment by the power
producers to:→ Bring their fossil fuel activities close to zero by 2035 in OECD and European
countries, and by 2040 worldwide.
→ Allocate most of their capex to renewable energy, excluding unsustainableenergy sources.
→ A comprehensive climate transition plan that allows investors to assess it
against a 1.5°C scenario as a benchmark and is subject to an annual
consultative vote at the AGM (as described above).
 Immediate commitment to exclude any company that sells any fossil fuel-fired plant,
unless:→ In case the plants are not closed but sold, asset managers shall expect strong
guarantees from the power producer that the new owners will: Close any coal-fired plant before 2030 and any fossil gas—fired plant
before 2035 if the plant is located in the OCED or European countries,
or before 2040 elsewhere.
 Not convert any plant to other fossil fuels or biomass.
 Provide sufficient financial means and measures to ensure that allsocial and environmental obligations are met.
→ In case new biomass or fossil gas plants are allowed, or in case plants are notclosed but converted to another technology, asset managers shall expect
strong guarantees from the power producer that:29 / 42

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





A comparative analysis shows that this conversion is economically,
ecologically, financially and technically more advantageous thanclosure or replacement by renewable energies with equivalent
production capacity.
An environmental and climate impact assessment demonstrates thatthe conversion will not result in increased GHG emissions across thevalue chain (and not just at the combustion stage).
A closure deadline consistent with a 1.5°C scenario, with a just andsustainable transition plan, including guarantees concerning thecapacity to fund and implement all worker and environmental
obligations. 90

An exception to the above measures may be made for the financing of activities or
subsidiaries dedicated to the energy transition (e.g. the deployment of renewable energy).
Dedicated funding (for example via use of proceeds bonds) must be explicitly earmarked andmust not be used for other activities. More specifically, an exception could be tolerated forgreen bonds or other sustainable use of proceeds bonds if the issuer's definition of green isrigorously verified. A Second Party Opinion on the issuer's framework alone does notguarantee the sustainable attributes of these debt instruments. It is recommended for asset
managers to have a public framework that clearly defines the projects they may finance withsustainable debt market instruments and to verify the compatibility of the overall strategy of
the issuer with their own commitments.
This exception must remain temporary, and only apply for the time needed for the company
to align its corporate strategy with a 1.5°C scenario. SLBs cannot be subject to such an
exception because they benefit the whole company, including its dirty activities.
N.B.: These recommendations are specific to the power sector and shall be read andimplemented in addition to other sets of recommendations, including those given in“Engagement & voting policies”.

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SAY ON CLIMATE
General context and objectives
Say on Climate resolutions are a corporate governance tool that enable investors to accessmeaningful information that is required to meet their own climate obligations and to express
their opinion about the climate transition plan of their portfolio companies. They are a tool forplanning, transparency, and accountability in climate matters. Like Say on Pay resolutions,they are simply good practice - indeed, a basic expectation - for corporate governance in the
21st century.
Regardless of the specific situation of each company, all companies and their investors shalltherefore seek to integrate this mechanism into their governance.
However, Say on Climate resolutions are not an appropriate and effective tool to enable
investors to obtain concrete and rapid results regarding the effective alignment of acompany's strategy and business model. It is only a consultative vote to facilitate access to
information and to increase pressure on the company. The effectiveness of an engagement
policy depends above all on the restrictive measures that make it up and the credibility of theassociated escalation strategy.

What to expect from companies
Asset managers shall expect companies and utilities, through the Say on Climate, to: Publish a comprehensive climate transition plan, which enables the shareholders toevaluate its alignment with a 1.5°C scenario.
 Commit to submit both the plan and the assessment of its implementation over the
past year to an annual vote at the AGM.
 Integrate the Say on Climate mechanism into the company's articles of association, by
amending them through a resolution voted at an Extraordinary General Meeting.
The above-mentioned climate transition plan shall include, at least, the following indicators:
 Short- and medium-term GHG emissions reduction targets on Scopes 1, 2, 3,
expressed in both absolute and intensity terms, encompassing all its activities.
 Possible contribution of captured GHG volumes to achieving emissions reduction
targets.
 Carbon offsetting approaches that may be implemented to complement the reduction
targets.
 Targeted energy mix evolution for short- and medium-term Short- and medium-term capex plans disaggregated by activity and by allocation
between maintenance and development of the Company's assets.
 Short- and medium-term opex disaggregated by activity and by cost item.

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 Explanation of baseline scenario used to set climate targets and how this considers
the best available science.

Recommendations regarding policy measures to implement
Asset managers shall determine a course of action to:••Assess the quality and admissibility of any Say on Climate shareholder resolution.
Decide under which conditions the filing of an alternative resolution is necessary.

When assessing and voting on a climate transition plan subject to a vote during the AGM,
asset managers shall commit to: Oppose Say on Climate resolutions when the climate transition plan subject to a vote
is not comprehensive (see above) and does not enable shareholders to evaluate itsalignment with a 1.5°C scenario.
 Oppose Say on Climate resolutions when their level of ambition and credibility are
deemed unsatisfactory (See What to expect from companies on each sectoral policy).
 From 2024, abstain on Say on Climate resolutions asking shareholders to approve a
climate transition plan on an ad hoc basis, without any guarantee as to the annual
renewal of this exercise and the stability of its format over time.
If the climate transition plan submitted by the management is not complete, or if the filing of
Say on Climate resolutions is not integrated into the company's articles of association so thatit becomes a permanent and continuous practice of good governance (via a resolution
adopted at an Extraordinary General Meeting), Asset managers shall commit to filing analternative climate resolution requiring 91 the companies to: Publish a comprehensive climate transition plan, which enables the shareholders toevaluate its alignment with a 1.5°C scenario.
 Commit to submit both the plan and the assessment of its implementation over the
past year to an annual vote at the AGM.
 Systematize and consolidate the content of the Say on Climate resolution by amending
the company’s articles of association via the adoption of a resolution at an
Extraordinary General Meeting.

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CLIMATE GOVERNANCE
General context and objectives
The credibility of climate transition plans also depends on how companies take climate issues
into account in their governance. For example, if the proper implementation of climate-related
measures is not fully integrated into the company's performance indicators, then economic
imperatives will continue to drive business strategy, without serious consideration for thenegative environmental externalities generated by the activities.
A company that does not make its climate commitments a priority in the development andmonitoring of its overall strategy cannot claim to be achieving its climate objectives.

What to expect from companies on climate governance
Board and management responsibility
The development and evaluation of the implementation of the climate transition plan should
be fully integrated into the priorities of the companies' top management, by setting up a
dedicated committee within the Board of Directors and senior management and by naming a
position at the board level with responsibility for climate issues. 92
These committees must have sufficient resources to work well, and their power must be
sufficiently strong internally to rectify any inadequate implementation of a climate transition
plan.
Annual accounts
Asset managers shall assess whether a company’s accounting practices and related
disclosures, and the auditor’s report thereon, reflect the way that climate change and global
decarbonization efforts are being captured in critical accounting assumptions andjudgments. 93
Climate remuneration
The board members’ and managers' remuneration scheme shall incorporate the climatetransition plan’s implementation as a KPI determining performance-linked compensation.
If the climate transition plan is not complete or sufficiently ambitious, asset managers canstill make their vote in favour of the resolution on executive remuneration conditional oncompliance with certain key indicators. For example, for an oil and gas company, bonuses
should not be granted if a significant portion of profits is invested in oil and gas expansion.

Recommendations
governanceon

engagement

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The asset managers shall clarify how they intend to hold relevant company decision-makers
accountable for specific failures to implement the climate transition plan. Recognising thatcompanies headquartered in different regions of the world are at different starting points andhave different responsibilities, investors may wish to adapt such policies to accommodate
varying expectations for different regions, for example to take account of different board
structures and voting timetables.
If the above-mentioned expectations are not met, asset managers shall vote against theresolution at the AGM following a clear escalation strategy, especially:•••

Vote against the resolution (re)appointing board directors if the climate objectives are
not consistent with a 1.5°C scenario, or if the climate transition plan is notcomprehensive enough. Additionally, and in jurisdictions where not all board directors
are elected every year, investors may wish to outline how they plan to use routine votes
on remuneration, auditor (re)appointments, and similar.
Vote against the resolution of the remuneration (“Say on Pay”) if the climate
performances are not satisfactory.
Vote against the annual accounts and/or the auditor (re)appointments if they do not
sufficiently consider the issues related to climate risks and the implementation of theclimate transition plan.

Each sanction vote must be motivated and backed up by a clear explanation to ensure thatthe reasons for the vote are explicit.

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CLIMATE LOBBYING
Asset managers shall adopt a responsible lobbying policy consistent with a 1.5°C scenario.
All lobbying activities in which asset managers participate and that are aimed at influencing
public officials (direct lobbying, such as governments, legislators, regulators, administration,international organisations, etc.) and public opinion (indirect lobbying, such as journalists,scientists, artists, etc.) shall apply to all their employees, subsidiaries and contractors, allbusiness areas, and all operational jurisdictions.
Asset managers shall commit, through a published code of conduct, to:
•

•

•
•

•
•

•
•
•
•
•

•

Align climate change-related lobbying objectives and activities with a 1.5°C objective
and establish an annual monitoring and review process to ensure that all direct andindirect climate change lobbying activities follow this commitment. 94
Disclose, for all geographies, the climate change related lobbying objectives andrecommendations (especially position papers submitted to public officials), as well as
the assessment of the influence that this lobbying has had on (a) supporting ambitious
public climate change policy, and (b) the company’s ability to deliver its own corporatetransition strategy.
Disclose, for all geographies, their membership of, support for and involvement in alllobbying groups engaged in climate change-related lobbying.
Establish a clear framework for escalation concerning misalignment between lobbying
positions adopted by these groups and the 1.5°C scenario 95. This escalation should
include leaving such lobbying groups if their activities are detrimental to reaching the
1.5°C target.
Disclose the agenda of meetings with public authorities and the nature of the publicdecisions targeted by the lobbying activities.
Disclose the budget spent on climate change-related lobbying, including the budget
spent directly, through the previously mentioned lobbying institutions and throughconsulting firms or other external bodies.
Create or participate in coalitions that have specific purpose of lobbying in support ofthe 1.5°C objective.
Commit not to challenge the phase out of fossil fuel facilities through investor-state
dispute settlement mechanisms (ISDS) and other legal mechanisms. 96
Commit to disseminate only science-based, up-to-date and verifiable information orarguments, and not disseminate deliberately biased information.
Name a senior decision-maker who is responsible for implementing these policies.
Create or participate in coalitions with the specific purpose of lobbying in support ofthe 1.5°C objective. These should integrate all kind of financial institutions, data
providers, rating agencies, shareholder voting agencies, etc.
Sign the Global Standard on Responsible Climate Lobbying (RCLS) 97

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For more information, asset managers can refer to the methodology of indicator 7 (Climate
policy engagement) set by the Climate Action 100+ and the Recommendation of the Council
on Principles for Transparency and Integrity in Lobbying published by the OECD.

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1

World Meteorological Organization, Provisional State of the Global Climate in 2022, 2022

2

UNEP, Emissions Gap Report 2022, October 2022

The numbers in this table are rounded to the nearest 5. The Summary for Policymakers cites thenecessary reductions as 43% GHGs and 48% CO2. IPCC, Sixth Assessment report. Climate Change
2022: Mitigation of Climate Change, Technical Summary Table TS-2, p.71, April 2022.
3

4

UNEP, Production gap report 2021, October 2021

IPCC, Sixth Assessment report. Climate Change 2022: Mitigation of Climate Change, B.7.1, p. 20, April
2022)
5

6

Working group II of IPCC, Technical Summary of the 6th assessment report, November 2021

World Meteorological Organization, Eight warmest years on record witness upsurge in climate change
impacts, November 2022
7

World Meteorological Organization, WMO Atlas of Mortality and Economic Losses from Weather,
Climate and Water Extremes (1970–2019), 2021
8

Munich Re, Hurricanes, cold waves, tornadoes: Weather disasters in USA dominate natural disasterlosses in 2021, January 2022
9

10

Ibid.

11

UNEP, Adaptation finance gap report, November 2022

12

ICFR, The cost of doing nothing, December 201913

World Bank, Groundswell Part 2: Acting on Internal Climate Migration, September 2021

Global Commission on the economy and climate, Unlocking the Inclusive Growth Story of the 21stCentury, 2018
14

15

Deloitte, Global Turning Point Report, May 2022

16

Reclaim Finance, From the fossil fuel age to the clean energy era, October 2022

17

Climate policy institute, Global Landscape of Climate Finance: A Decade of Data, October 2022

18

Reclaim Finance, From the fossil fuel age to the clean energy era, October 2022

Reclaim Finance, The IEA’s net-zero 2050 : The new normal and what’s left to be done, December
2021
19

For more information: IISD, Lighting the Path: What IPCC energy pathways tell us about Paris-aligned
policies and investments, June 2022
20

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Reclaim Finance | Recommendations for Asset managers | February 2023

For more information: GFANZ, Financial Institution Net-Zero Transition Plans: Fundamentals,
Recommendations and Guidance, pp.78-79, November 2022
21

PCAF, Financed Emissions: The Global GHG Accounting and Reporting Standard. Part A, December
2022
22

GFANZ, Financial Institution Net-Zero Transition Plans: Fundamentals, Recommendations andGuidance, p.77, November 2022
23

For methodologies see PCAF, Financed Emissions: The Global GHG Accounting and ReportingStandard. Part A, December 2022. NZAOA, Target-Setting Protocol 3rd edition, January 2023.
24

For more information : Reclaim Finance, The TPI benchmark: misleading approach, dangerous
conclusion, December 2021
25

Opt-out clause: customers who do not want the climate policy to apply to their investments must
indicate this to the asset manager. Opt-in clause: customers must indicate their wish to have their own
climate policy applied to their investment under management.
26

27

The pre-declaration of voting intention can be uploaded into the PRI’s Resolution Database

The halt to expansion stipulated by the IEA in its NZE relates to the opening of new production fields.
Furthermore, the research of the analysts who built the GOGEL shows that the data on company
revenues is unfortunately very approximate. Indeed, private data providers, in the absence of accurate
reporting from companies, are often forced to estimate the share of revenues derived fromunconventional hydrocarbons from a production amount and a proxy on revenues.
28

Not only is the data unreliable, but this results in an underestimate of the share of unconventional incompanies' activities - for example, a 20% revenue criterion in shale gas covers a much smaller numberof companies than a 20% production criterion. Finally, a growing number of companies are diversifying,increasing their activities in midstream and power generation, without decreasing their hydrocarbon
production, including in unconventional. As a result, the share of unconventional oil in their revenues isdecreasing without a decrease in production in absolute value.
There is therefore no decrease in the climate impact of these companies. The revenue metric can bejustified when the assessment is carried out on all or a significant part of the value chain, beyond
production, even though it would be possible to have an assessment based on volumes transported forwhat comes under the midstream.
Energy Policy, The impact of water depth on safety and environmental performance in offshore oiland gas production, Volume 55, 2013, Pages 699-705, April 201329

For more information: Reclaim Finance, Drill, baby, drill. How banks, investors and insurers are driving
oil and gas expansion in the Arctic, September 2021
30

Observatoire de la finance durable, Recommandations du Comité Scientifique et d’Expertise portant
sur les hydrocarbures non conventionnels et les stratégies d’alignement, p. 10, Septembre 2021
31

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Reclaim Finance | Recommendations for Asset managers | February 2023

33

Ibid.

34

ADEME, Methodology of ACT in Oil & gas sector, p. 10, February 2021

The World Commission on Dams, Dams and development. A new framework for decision-making,November 2000.
35

For more information : Global Energy Monitor, CREA, E3G, Sierra Club, SFOC, Kiko Network, CAN
Europe, LIFE, BWGED, BAPA, and Waterkeepers Bangladesh, Boom and bust coal 2022, April 2022
36

37International Energy Agency, Coal 2022: analysis and forecast to 2025, December 2022

38

For more information : Urgewald, Global Coal Exit List 2022 : no transition in sight, October 2022

39

For more information : Urgewald, Global Coal Exit List 2022 : no transition in sight, October 2022

Environmental Research letters, Quantifying the regional stranded asset risks from new coal plants
under 1.5 °C, Volume 17, Number 2, February 2022)
40

Carbon Tracker, Powering Down Coal: Navigating the economic and financial risks in the last yearsof coal power, November 2018
41

International Energy Agency, Coal in Net Zero Transition: Strategies for rapid, secure, and peoplecentred change, November 2022
42

43International Monetary Fund, The Great Carbon Arbitrage, June 2022

44

IPCC, Sixth Assessment Report: Mitigation of Climate Change, April 2022

For more information : UNEP, The production gap : Governments’ planned fossil fuel production
remains dangerously out of sync with Paris Agreement limits, November 2021
45

International Energy Agency, Coal in Net Zero Transition: Strategies for rapid, secure and peoplecentred change, November 2022
46

47

Nature, Unextractable fossil fuels in a 1.5 °C world, September 2021

International Energy Agency, Coal in Net Zero Transition: Strategies for rapid, secure and peoplecentred change, November 2022
48

49

Ibid.

50

Climate Analytics, Coal phase-out

International Energy Agency, Coal in Net Zero Transition: Strategies for rapid, secure, and peoplecentred change, § 1.4.3, November 2022
51

3.2.1 International Energy Agency, Net Zero by 2050 : A roadmap for the global energy sector, § 3.2.1,
October 2021
52

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Reclaim Finance | Recommendations for Asset managers | February 2023

International Energy Agency, Coal in Net Zero Transition: Strategies for rapid, secure, and peoplecentred change, § 1.4.4, November 2022
53

For more information : Reclaim Finance, How to exit coal : 10 criteria for evaluating corporate coalphase-out plans, October 2021
54

For more information : Climate Analytics, Global and regional coal phase-out requirements of theParis Agreement: Insights from the IPCC Special Report on 1.5°C, September 201955

For more information : International Energy Agency, Phasing out unabated coal : current status andthree case studies, October 2021. Beyond Coal, Just transition in the context of European power utilities
and Asset managers, August 2020.
56

57

Ibid.

For more information : International Energy Agency, CCS Retrofit : Analysis of the Globally Installed
Coal-Fired Power Plant Fleet, 2012. Bloomberg NEF, Japan’s Ammonia-Coal Co-Firing Strategy a Costly
Approach to Decarbonization, Renewables Present More Economic Alternative, September 2022
58

59

Urgewald’s GCEL currently lists 20%. They will be lowered to 10% of the in the updated plan of 2023.

Urgewald’s GCEL currently lists 20% of power production or installed power capacity from coalthresholds. They will be lowered to 10% of the coal share of power capacity in the updated plan of 2023.
60

For more information : International Energy Agency, Phasing out unabated coal : current status andthree case studies, October 2021. Beyond Coal, Just transition in the context of European power utilities
and Asset managers, August 2020.
61

62

Ibid.

63

Ibid.

Les Echos, Les investissements repartent à la hausse dans l'exploration et l'extraction pétrolière,
January 2023
64

IISD, Lighting the Path: What IPCC energy pathways tell us about Paris-aligned policies andinvestments, June 2022
65

66

Carbon Tracker, Unburnable Carbon: Ten Years On, June 2022

67

International Energy Agency, World Energy Outlook 2022, p.164, November 2022

68

International Energy Agency, World Energy Outlook 2022, p.133-134, November 2022

69

International Energy Agency, World Energy Outlook 2022, Figure 3.22, November 2022

70

International Energy Agency, World Energy Outlook 2022, p.64, November 2022

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Reclaim Finance | Recommendations for Asset managers | February 2023

According the Net-Zero-by-2050 scenario of the IEA, for every US$ 1 spent globally on fossil fuels in
2030, more than US$ 9 is spent on clean energy in the NZE. For more information : Reclaim Finance,
WEO 2022 – From the fossil fuel age to the clean energy era, October 2022.
71

International Energy Agency, Curtailing Methane Emissions from Fossil Fuel Operations Pathways toa 75% cut by 2030, October 2021
72

73

For more information : Urgewald, Global Coal Exit List 2022 : no transition in sight, October 2022

Carbon Tracker, Powering Down Coal: Navigating the economic and financial risks in the last yearsof coal power, November 201874

UNECE, Carbon Neutrality in the UNECE Region: Integrated Life-cycle Assessment of Electricity
Sources, March 2022.
75

76

Bloomberg NEF, Energy Transition Investment Now On Par with Fossil Fuel, February 2023.

77

International Energy Agency, Energy Technology Perspectives 2023, January 2023.

International Energy Agency, Coal in Net Zero Transition: Strategies for rapid, secure and peoplecentred change, November 2022
78

79

International Energy Agency, Net Zero by 2050: A roadmap for the global energy sector, October 2021

IISD, Lighting the Path: What IPCC energy pathways tell us about Paris-aligned policies andinvestments, June 2022
80

81International Energy Agency, World Energy Outlook 2022, p.62, November 2022

82

International Energy Agency, World Energy Outlook 2022, p.138, November 2022

Bloomberg NEF, Investment Requirements of a Low-Carbon World: Energy Supply Investment Ratios,
October 2022.
83

84

Reclaim Finance, WEO 2022 – From the fossil fuel age to the clean energy era, November 2022.

For more information : International Energy Agency, Phasing out unabated coal : current status andthree case studies October 2021. Beyond Coal, Just transition in the context of European power utilities
and Asset managers, August 2020.
85

86

Ibid.

Although these technologies provide an advantage in terms of lowering GHG emissions for electricity
generation, their level of maturity is far too low and the cost of conversion far too high to expect a
reduction in emissions from the sector in the medium term. For example, current production level for
low-carbon hydrogen is only around 0.5% of current hydrogen production being from low-carbon
sources, that is about 0.03% of global fossil gas production (Source : IGU, Global Renewable and lowcarbon gas report, 2021).
87

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Reclaim Finance | Recommendations for Asset managers | February 2023

For more information : International Energy Agency, CCS Retrofit : Analysis of the Globally Installed
Coal-Fired Power Plant Fleet, 201288

Urgewald’s GCEL currently lists 20% of power production or installed power capacity from coalthresholds, and 5 GW of coal-fired power capacity. They will be lowered to 10% of the coal share of
power capacity/generation and 2,5 GW of in the updated plan of 2023.
89

For more information : International Energy Agency, Phasing out unabated coal : current status andthree case studies October 2021. Beyond Coal, Just transition in the context of European power utilities
and Asset managers, August 2020.
90

The degree of prescriptibility of the resolution must be at the highest level allowed by the applicablejurisdiction.
91

For more information: IGCC, What investors expect of company directors on climate risk, November
2021
92

For more information : Climate Action 100+, Climate Accounting and Audit Indicator, November 2021.
PRI, Climate Accounting and CA100+ briefing. IFRS, Effects of climate-related matters on financial
statements, November 2021.
93

For more information: PRI, Converging on climate lobbying: aligning corporate practice with investor
expectations, May 201894

For more information: CERES, Blueprint for Responsible policy engagement on climate change, June
2020
95

96

For more information : IISD, Investor-State Disputes in the Fossil Fuel Industry, December 2021

97

For more information: PRI, Climate lobbying, March 2022

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